Law:

Section:

Section 48, read with section 55(2), of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 1968-69 - Whether compensation paid by assessee, party to whom assessee had contracted to sell plot, but did not sell, is deductible while computing capital gains arising from sale of such plot to another party later - Held, yes - Whether section 48 directly or indirectly prohibits disallowance of any expenditure which can be claimed under that section in case a person has exercised option under section 55(2)(i) - Held, no Section 55(2)(i) of the Income-tax Act, 1961 - Capital gains - Cost of acquisition - Assessment year 1968-69 - Whether Tribunal rightly allowed exercise of option for substituting fair market value as on 1-1-1954 for actual cost in computing capital gains where plot was purchased in 1948 - Held, yes FACTS The assessee had purchased a plot of land admeasuring 5,072 sq. yes. in 1948for Rs. 15,774. On 2-8-1963, the assessee contracted to sell the same to R Ltd. at Rs. 29 per sq. yard. Somehow the deal did not materialize and in the suit for specific performance filed by R Ltd. the assessee agreed to pay compensation of Rs. 35,504 to which the former agreed and the suit was withdrawn. In the meantime the assessee contracted to sell the plot to a society for Rs. 2,58,672. The assessee claimed deduction of the amount of Rs. 35,504 while computing the capital gains either as expenditure incurred in connection with the transfer or as cost of improvement under section 48 itself. The assessee also exercised option under section 55(2). The departmental authorities rejected the assessee's claim. On second appeal, the Tribunal accepted the assessee's contention that transfer to society could not have taken place unless the compensation was paid to R. Ltd. It, therefore, held that expenditure was incurred wholly and exclusively in connection with the transfer as contemplated under section 48(i). The Tribunal also held that the expenditure could be said also to have been incurred to remove the obstruction and to obtain a clear title to the property before sale and such expenditure would also form part of the cost of acquisition of capital…

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